Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 11 Externalities and the Environment
11.1 Negative Externalities: Pollution
1) When studying pollution and the environment, economists
A) have no role to play.
B) concentrate on the physical aspects of the environment.
C) emphasize costs and benefits.
D) attempt to reduce pollution at all costs.
E) think pollution is good if it occurs when production takes place.
2) Pollution is an example of a ________ externality.
A) negative production
B) positive production
C) negative consumption
D) positive consumption
E) Coasian
3) The production of electricity creates pollution. When deciding how much electricity to buy,
customers ________ the cost of pollution. When deciding how much electricity to buy,
producers ________ the cost of pollution.
A) take into account; take into account
B) do not take into account; do not take into account
C) take into account; do not take into account
D) do not take into account; take into account
E) None of the above answers is correct.
4) Marginal private cost
A) is always zero if there is an external cost.
B) equals the marginal social cost only if the marginal external cost is positive.
C) is the cost of producing an additional unit of a good or service that is paid by the producer of
that good or service.
D) the cost of producing an additional unit of a good or service that falls on people other than the
producer of that good or service.
E) the cost of producing an additional unit of a good or service that is paid by the entire society.
5) A private cost is a cost of production that is
A) borne by the producer of a good.
B) measured in marginal terms.
C) borne by someone other than the producer of a good.
D) measured in total terms.
E) the same as an external cost.
6) The cost of producing an additional unit of a good or service that is borne by the producer of
that good or service is the marginal
A) external cost.
B) private cost.
C) social cost.
D) public cost.
E) None of the above answers is correct.
7) The difference between private cost and social cost is that
A) social cost only considers the external cost borne by society.
B) social cost only considers the cost borne by people other than the producer.
C) private cost only considers the cost borne by producers of the good.
D) social cost also includes any external benefit whereas private cost excludes all external
benefits.
E) there is no difference; the terms refer to the same cost.
8) Harry, the owner of a beauty salon, hires a new hair stylist. The wages paid to the new stylist
are
A) a private cost and not an external cost .
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) only a private benefit because people want their hair styled.
9) Joanne rents a TV production studio to produce an extra hour of a TV show. The rent is
A) a private cost and not an external cost.
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) a private benefit because viewers will benefit from watching the extra hour of the show.
10) For a product with an external cost, the supply curve
A) represents the various quantities people can buy.
B) is the same as the marginal private cost curve.
C) is the same as the marginal social cost curve.
D) is the same as the marginal external cost curve.
E) is undefined.
11) For a firm, its labor costs are
A) a marginal benefit.
B) a private cost.
C) an external cost.
D) Both answers A and C are correct.
E) Both answers A and B are correct.
12) The cost of producing an additional unit of a good or service that falls on people other than
the producer is the marginal
A) external cost.
B) private cost.
C) social cost.
D) social benefit.
E) None of the above answers is correct.
13) A marginal external cost of a product is equal to
A) what the producer has to pay to hire resources to produce another unit.
B) the cost someone other than the producer incurs when another unit is produced.
C) the cost the producer incurs to produce another unit.
D) what the consumer must pay when he or she buys the good or service.
E) None of these answers describes a marginal external cost.
14) A loud band plays a concert late at night in a neighborhood park. The noise produced by the
band that keeps the neighbors not attending the concert awake is
A) only a private cost.
B) only an external cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) private benefit because the neighbors get to hear the band.
15) Which of the following is an example of an external cost?
A) taxes
B) the price of a car wash
C) pollution
D) an electricity bill
E) paying a wage that exceeds the minimum wage
16) A firm dumps dioxin in a river, thereby severely polluting the river. The cost of the water
pollution is
i. zero for the firm.
ii. an external cost.
iii. part of the marginal social cost
A) i only.
B) ii only.
C) iii only.
D) ii and iii.
E) i, ii, and iii.
17) When logging in the Pacific Northwest destroys forests that hikers would have used for eco-
tourism, the destruction of the trails is an example of
A) an external cost.
B) a private cost.
C) a government cost.
D) an external benefit.
E) None of the above answers is correct.
18) Which of the following is an example of an external cost?
A) a grove of trees planted in a park in Seattle
B) a library built in Philadelphia
C) a new, faster computer chip
D) an oil spill off the coast of South America
E) a student graduating from college
19) Jacob pays $5,000 to paint his house because pollution from a nearby factory damaged the
paint. To the factory, the $5,000 cost is
A) a private cost and not an external cost.
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.
E) a private benefit because viewers will benefit from watching the extra hour of the show.
20) A landfill site produces an obnoxious odor. Homes downwind of the site rent for $1000 per
month while homes upwind of the site rent for $1500 per month. If the odor is the only
detectable difference between two neighborhoods, the difference in the rent is the ________ of
the odor.
A) social cost
B) external cost
C) private cost
D) marginal cost-benefit
E) private benefit
21) Suppose two neighborhoods (A and B) have identical housing, but neighborhood A has a
strictly enforced deed restriction that prohibits homeowners from parking junk cars in the front
yard. If houses in neighborhood A sell for $105,000 and houses in neighborhood B sell for
$100,000, how would an economist value the external cost of visible junk cars, per house?
A) $205,000
B) $105,000
C) $100,000
D) $5,000
E) None of the above answers is correct.
22) Suppose two neighborhoods with 10 homes each in Buffalo, New York are identical except
one of them is near a toxic waste dump. If homes near the dump sell for an average of $40,000
and the other homes sell for $90,000, the external cost of the dump is
A) $400,000.
B) $1,300,000.
C) $900,000.
D) $500,000.
E) $90,000.
23) The marginal cost incurred by the entire society to produce a good or service is the
A) marginal external cost.
B) marginal private cost.
C) marginal social cost.
D) marginal social benefit.
E) marginal private benefit.
24) Marginal social cost is equal to
A) the amount people who buy a product pay for another unit.
B) whatever producers have to pay to produce output.
C) the sum of marginal private cost and the marginal external cost.
D) the average of marginal private cost and the marginal external cost.
E) None of the above answers is correct.
25) Marginal social cost is the
A) price a consumer pays for one more unit of a good.
B) cost a producer incurs producing one more unit of a good.
C) cost of producing one more unit of a good that falls on someone other than the producer.
D) sum of the cost a producer incurs from producing one more unit of a good plus the cost of
producing one more unit of a good that falls on someone other than the producer.
E) same as marginal cost only if there is an external cost when the good is produced.
26) Which of the following equations is correct?
A) MC = MSC + marginal external cost
B) MSC = MC ÷ marginal external cost
C) MSC = MC + marginal external cost
D) MSC = MC × marginal external cost
E) MC = marginal external cost – MSC
27) The marginal social cost of producing a good or service is the
A) cost of producing an additional unit borne by the producer.
B) cost of producing an additional unit borne by people other than the producer.
C) sum of the marginal private cost and the marginal external cost.
D) same as marginal external cost.
E) sum of the marginal private cost and the marginal external cost minus the marginal social
benefit.
28) Which of the following is true?
A) MSC = MC + Marginal external cost.
B) MC = Marginal external cost – MSC.
C) MC = Marginal external benefit + MSC.
D) MSC = Marginal external cost + marginal external benefit.
E) MSC = Marginal external cost – marginal external benefit.
29) If there is no external cost, then marginal social cost
A) increases as output increases.
B) decreases as output increases.
C) is constant regardless of the level of output.
D) is unrelated to output levels.
E) first increases and then decreases as output increases.
30) If a product has zero external costs, then
A) marginal social cost equals marginal private cost.
B) marginal social cost is greater than marginal private cost.
C) marginal social cost is less than marginal private cost.
D) marginal social cost equals zero.
E) we need more information to determine the relationship between marginal private cost and
marginal social cost.
31) If the marginal external cost of building a children’s playground equals zero, then the
i. marginal private cost equals the marginal social cost.
ii. marginal social cost equals zero.
iii. marginal private cost equals zero.
A) i only.
B) ii only.
C) iii only.
D) ii and iii.
E) i and ii.
32) If the marginal private cost of running a car is $0.30 a mile and the marginal external cost is
$0.10, what is the marginal social cost?
A) $0.20
B) $3.00
C) $0.03
D) $0.40
E) None of the above answers is correct.
33) If the marginal social cost of generating a kilowatt of electricity is $0.10 and the marginal
private cost is $0.08, what is the marginal external cost?
A) $0.18
B) $0.10
C) $0.08
D) $0.02
E) $0.80
34) If the marginal social cost of producing a ton of cement is $4,000 and the marginal private
cost is $3,500, then the
A) marginal benefit of a ton of cement will equal $4,000.
B) total cost of producing a ton of cement is $7,500.
C) marginal external cost of producing a ton of cement is $500.
D) marginal external cost of producing a ton of cement is $7,500.
E) marginal external cost of producing a ton of cement is $4,000.
35) If a good has an external cost, then the marginal private cost curve
A) lies below then the marginal social cost curve.
B) lies above the marginal social cost curve.
C) lies below the horizontal axis.
D) is the same as the marginal external cost curve.
E) is undefined because the firms’ costs are not equal to the social costs.
36) The marginal external cost and marginal private cost
A) are all borne by the seller.
B) are opportunity costs.
C) when added, equal the sum of the marginal private benefit plus the marginal social benefit at
equilibrium.
D) are regulated by the government.
E) must always be equal in equilibrium.
37) If the production of a good causes an external cost, then the efficient quantity is
A) equal to the quantity at which the marginal benefit equals marginal cost.
B) less than the quantity at which the marginal benefit equals the marginal cost.
C) more than the quantity at which the marginal benefit equals the marginal cost.
D) the quantity at which the marginal private benefit is greater than the marginal social benefit.
E) None of the above answers is correct.
38) If a good has an external cost, the
A) unregulated competitive market outcome is efficient.
B) marginal private cost reflects the external cost.
C) unregulated competitive market outcome is inefficient.
D) marginal social benefit is equal to the marginal social cost when the market is in equilibrium.
E) external benefit must equal the external cost.
39) The basic reason that a competitive unregulated market produces an inefficient amount of a
good with an external cost because
A) producers cannot measure marginal social cost.
B) producers do not pay the external cost.
C) the general public does not care about external costs.
D) external costs are not a political issue.
E) the external cost is paid by consumers rather than producers.
40) When production of a good results in an external cost, the unregulated competitive market
equilibrium quantity is
A) the efficient level of output.
B) greater than the efficient level of output.
C) not zero but is less than the efficient level of output.
D) unattainable.
E) zero.
41) If producing a good or a service creates pollution, then
A) an unregulated competitive market produces an efficient output.
B) the industry’s supply curve includes the extra cost of pollution.
C) at the unregulated, competitive market equilibrium quantity, marginal social cost is greater
than the equilibrium price.
D) at the unregulated, competitive market equilibrium quantity, marginal social benefit and
marginal social cost are equal.
E) at the unregulated, competitive market equilibrium quantity, marginal social benefit is less
than the equilibrium price.
42) An external cost in the production of a good creates a difference between the
i. costs borne by the producer and the costs borne by society in general.
ii. efficient quantity of output and the equilibrium quantity of output.
iii. marginal social cost and the marginal private cost.
A) i only
B) iii only
C) ii and iii
D) i, ii, and iii
E) i and iii
43) The deadweight loss associated with producing a product that has an external cost occurs
because
A) too much output is produced.
B) too little output is produced.
C) the price firms charge for the good is too high.
D) not enough resources are allocated to producing the good.
E) the marginal social cost does not equal zero.
44) When production of a good results in an external cost, the unregulated competitive market
equilibrium is inefficient because ________.
A) MSC = MC
B) MSC = MB
C) MSC > MB
D) MSC < MB
E) MSC is undefined
45) For a good whose production creates an external cost, the efficient quantity of output is
A) where the market demand curve and the market supply curve intersect.
B) where the marginal social cost curve and marginal benefit curve intersect.
C) as low as possible.
D) zero.
E) the amount of production so that the marginal social benefit exceeds the marginal social cost
by as much as possible.
46) The figure above illustrates the marginal private cost and the marginal social cost to the city
of Seattle for each rock concert that is offered. If 5 concerts are put on, then the
A) marginal external cost will be greater than the marginal social cost.
B) marginal external cost will be greater than the marginal private cost.
C) marginal external cost will equal the marginal private cost.
D) marginal social cost will equal the marginal external cost.
E) marginal external cost will equal zero.
47) The figure above illustrates the marginal private cost and the marginal social cost to the city
of Seattle for each rock concert that is offered. Suppose the marginal private cost of the 5th
concert is $10,000. Then, for the 5th concert, the
A) marginal external cost equals $30,000.
B) marginal social cost equals $30,000.
C) marginal external cost equals the marginal private cost.
D) marginal external cost equals $40,000.
E) marginal external cost equals $10,000.
48) The figure above illustrates the marginal private cost and the marginal social cost to the city
of Seattle for each rock concert that is offered. At 10 concerts, the
A) marginal private cost equals the marginal external cost.
B) marginal social cost equals $60,000.
C) marginal private cost is more than $40,000.
D) marginal external cost equals $60,000.
E) marginal external cost equals $80,000.
49) The figure above represents the relationship between output and cost in an industry with an
external cost. Which line represents the marginal private cost (MC) curve?
A) Curve 1
B) Curve 2
C) the dotted line BC
D) the y-axis
E) the dotted line AB
50) The figure above represents the relationship between output and cost in an industry with an
external cost. When output is at D, what distance represents the marginal external cost?
A) AB
B) BC
C) CD
D) BD
E) None of the above answers is correct.
51) The figure above shows the marginal social cost of generating electricity and the marginal
private cost. For 4 billion kilowatts, what is the marginal external cost?
A) $0.12
B) $0.08
C) $0.04
D) $0.00
E) $0.20
52) The figure above shows the marginal social cost curve of generating electricity and the
marginal private cost curve. The difference between the marginal cost curve and the marginal
social cost curve equals
A) marginal private cost.
B) private cost.
C) external cost.
D) marginal external cost.
E) Coasian cost.
53) The figure above shows the marginal social cost curve of generating electricity and the
marginal private cost curve. The marginal cost borne by producers when 100 billion kilowatt
hours are produced is
A) 5¢ per kilowatt.
B) 10¢ per kilowatt.
C) 15¢ per kilowatt.
D) 20¢ per kilowatt.
E) 0¢ per kilowatt.
54) The figure above shows the marginal social cost curve of generating electricity and the
marginal private cost curve. The marginal cost borne by producers when 200 billion kilowatt
hours are produced is
A) 0¢ per kilowatt.
B) 10¢ per kilowatt.
C) 20¢ per kilowatt.
D) 15¢ per kilowatt.
E) 5¢ per kilowatt.
55) The figure above shows the marginal social cost curve of generating electricity and the
marginal private cost curve. The marginal external cost when 100 billion kilowatt hours are
produced is
A) 0¢ per kilowatt.
B) 5¢ per kilowatt.
C) 10¢ per kilowatt.
D) 15¢ per kilowatt.
E) 20¢ per kilowatt.
56) The figure above shows the marginal social cost curve of generating electricity and the
marginal private cost curve. The marginal external cost when 200 billion kilowatt hours are
produced is
A) 0¢ per kilowatt.
B) 10¢ per kilowatt.
C) 20¢ per kilowatt.
D) 15¢ per kilowatt.
E) 5¢ per kilowatt.